In every industry, collecting metrics that indicate the return on investment for a particular business event, campaign or strategy is essential to the success of your operations. Doing so informs you whether what your company is getting the intended results, and can allow for a quick course change if the numbers start to move in the wrong direction.

Basic ROI

Return on investment, called ROI, is the incremental gain from a business operation divided by its cost. It measures the efficiency with which business is using its available resources. It’s a key metric for public companies with shareholders to satisfy, but even if you’re a small business or sole proprietorship it is a key way to tell what’s working and what isn’t. You can’t afford to waste your time and money on measures that aren’t working.

Operational

On a basic level, segmenting your ROI calculations can let you know how your business is performing. If you have a general store, for example, you could use ROI to find out whether you’re making money on electronics but operating at a loss on books and media. That allows you to be better informed when conducting strategic planning. If your ROI isn’t what you expect, it’s time to search for new efficiencies or move resources to a more lucrative position.

Technical

ROI metrics are often tricky for those pushing informational technology upgrades, who have to explain the cost savings that can arise from purchasing a new server or installing different systems. For an upgrade designed to save money, it can be a simple calculation balancing that savings against costs associated with the new equipment. Revenue-generating products can be more difficult to measure and require estimates that can be challenged by skeptics who don’t want to pay the up-front costs associated with it. It can be tougher on you because the costs are likely going to go against your budget even while others benefit. For example, your sales department might benefit from a new server or operating system that speeds up the order-taking process, but they’re not going to want to pay for it from their budget.

Marketing

Marketing has been comparatively late to the ROI game, in part because concepts like “brand awareness” are difficult to relate directly to sales. While it may be a challenge, marketing-mix models can deliver data on short-term lifts in sales that can be correlated with individual marketing efforts, allowing you to get a better sense of what is driving sales. You’ll also want to use longer-term metrics to note the ROI for your marketing efforts resulting from the way people perceive your brand over time.

Competetive

When you’re judging your ROI, compare it to your competition. Having a positive ROI isn’t necessarily a sign of success if the rest of the industry is putting up better numbers. On the other hand, if your ROI for marketing efforts is stronger than your rivals, that’s a competitive advantage that you can exploit.